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this post was submitted on 21 Jun 2025
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The minutia of the algorithm is private, to prevent gaming it, but the major factors are very well known, and make perfect sense.
Also if you repay your loan early is somehow bad for your credit score.
If you change your bank to go to a cheaper one alters your score (creating sticky monopolies).
To scam citizens out of yields while minimising the chance of nonperforming loans?
The rest of the world puts citizens first.
The banks are the professionals with all the data & capital. They get to multiplicate money (give loans without backing) and get to charge relatively big interests on those loans (interes rates (spreads over risk-free) tnot indicative of/to cover the expenses of defaults, which are very rare overall, or their own operating costs).
The money multiplication thing comes from the state (central bank), and it exists to allow people to live & to perpetually stimulate the economy (eg getting a house earlier than saving up the lump sum to buy it whole). The banks job is to balance things out & offer competitive loans in terms of profits vs probability of defaults. Without that it's just free money for the banks. Like insurance business only selling policies to people/entities that won't ever need them.
With regular credit card use only, my credit score is well over 750 (and 750+ is top-tier from the perspective of basically 100% of lenders). And the last installment loan I had (car purchase over a decade ago), I coincidentally DID pay off early. Also, my average credit age, just checked, is 7y 9mo, less than the ten years mentioned above.
Credit scores can only benefit good borrowers. Without them, everyone gets treated the same as people who have never borrowed, and lenders are obviously going to err on the side of caution (read: higher interest rates) when lending to someone who's a big question mark. But with credit scores, lenders can know who the ones who do make their payments regularly are, in other words, who it's least risky to lend to, which leads to lower interest rates.
In short, without credit scores, everyone gets shitty rates. With them, only shitty borrowers get shitty rates.
To reiterate, the bottom line is that you don't need to pay a single penny of interest to have a superb credit score. Just use a credit card and don't borrow more than you can pay off every month, same way you'd be limited if you were spending cash on the spot each time. That's literally all it takes.